AFIC plans spending spree

Australia's most influential listed investment fund is preparing for a $220 million sharemarket spending spree.

By InvestSMART · 26 Jan 2012

By InvestSMART ·
26 Jan 2012

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Australia's most influential listed investment fund is preparing for a $220 million sharemarket spending spree.

AUSTRALIA'S most influential listed investment fund is preparing for a $220 million sharemarket spending spree to take advantage of beaten-down stock prices.

Australian Foundation Investment Company, which has more than $4.3 billion under management and counts sharemarket doyen Bruce Teele as chairman, believes that with stocks trading at a deep discount after nearly two years of losses, it is almost time to start buying.

The Australian sharemarket has made a strong start to the year, gaining more than 5 per cent even as economic troubles in Europe continue to weigh on global sentiment.

AFIC managing director Ross Barker said retail investors were still holding back from equity markets because they were ''shell-shocked'' by the steep losses since last April.

''We're cautious about the short-term situation, but we're really a long-term investor,'' he said.

''Our approach is to take advantage of the negative market sentiment to pick up some things for the medium to long term which we think will be good for the portfolio in that time frame.''

AFIC, Australia's largest listed fund manager, was last month rushed by investors for a $223 million convertible note raising. The notes trade on the Australian Securities Exchange and are similar to debt instruments in making an annual payout.

AFIC yesterday reported a 7 per cent drop in first-half profit to $113.6 million. While it generates most of its income from dividends in the shares it holds, most of the drop in earnings came from a fall in the market value of the fund's investment portfolio.

AFIC declared an interim dividend of 8? a share, fully franked, flat on the same time last year.

AFIC's mostly blue-chip portfolio fell 7.8 per cent in the half-year, compared with a 9.7 per cent fall in the S&P/ASX 200 Index.

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Frequently Asked Questions about this Article…

What is AFIC's $220 million spending spree and why is the investment fund planning it?

The article says the Australian Foundation Investment Company (AFIC) is preparing a roughly $220 million sharemarket spending spree to take advantage of beaten-down stock prices. AFIC believes many stocks are trading at deep discounts after nearly two years of losses, and the fund plans to buy for the medium to long term.

How much does AFIC manage and who leads the fund?

According to the article, AFIC manages more than $4.3 billion and counts veteran investor Bruce Teele as chairman. The fund's managing director is Ross Barker.

Why does AFIC think now is a buying opportunity for long-term investors?

AFIC says negative market sentiment and beaten-down prices present opportunities. While cautious about the short term, the fund aims to pick up stocks it believes will be good for the portfolio over the medium to long term as markets recover from recent steep losses.

How did AFIC perform in the most recent half-year and what caused the drop in profit?

The article reports AFIC posted a 7 per cent drop in first-half profit to $113.6 million. While AFIC earns most of its income from dividends on held shares, the earnings decline mainly came from a fall in the market value of the fund’s investment portfolio.

What dividend did AFIC declare and was it changed from last year?

AFIC declared an interim dividend that the article reports as '8? a share', fully franked, and notes this was flat compared with the same time last year (no increase reported).

What are the AFIC convertible notes that were recently issued and how big was the raising?

The article says AFIC was recently rushed by investors for a $223 million convertible note raising. Those notes trade on the Australian Securities Exchange and are described as similar to debt instruments that make an annual payout.

How did AFIC's portfolio performance compare to the S&P/ASX 200 in the half-year?

AFIC's mostly blue-chip portfolio fell 7.8 per cent in the half-year, while the S&P/ASX 200 Index fell 9.7 per cent over the same period, according to the article.

Why are many retail investors still holding back from equities even though the market has started to recover?

The article quotes AFIC managing director Ross Barker saying retail investors remain 'shell‑shocked' by the steep losses since last April. It also notes the Australian sharemarket has gained more than 5 per cent so far this year, even as economic troubles in Europe continue to weigh on global sentiment.